Facebook to buy messaging app WhatsApp for $19bn

 

Facebook's $19bn WhatsApp deal explained in 60 seconds

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Facebook has bought messaging app WhatsApp in a deal worth a total of $19bn (£11.4bn) in cash and shares.

It is the social networking giant's biggest acquisition to date.

WhatsApp has more than 450 million monthly users and is popular with people looking to avoid text messaging charges.

In a statement announcing the deal, Facebook founder Mark Zuckerberg described WhatsApp's services as "incredibly valuable".

WhatsApp allows users to send messages over internet connections, avoiding text messaging fees. The company claims it is currently registering one million new users a day.

It makes money by charging users a subscription fee of $1 per year, although it offers a free model as well.

The BBC's Dave Lee explains why some analysts think it may yet prove to be a good buy

Silicon Valley's newest billionaires

The deal to buy it includes $4bn in cash and approximately $12bn-worth of Facebook shares, plus an additional $3bn in stock to WhatsApp's founders and employees at a later date.

On a conference call to discuss the deal, WhatsApp co-founder Jan Koum said he planned to operate the firm "independently and autonomously". He will also become a member of Facebook's board of directors.

"We're excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world," Mr Koum said in a statement.

Mr Zuckerberg said the prospect of a deal was first floated just 11 days ago.

Analysis

That Facebook bought WhatsApp is less of a surprise than the sheer amount it has been willing to pay for it.

Some are seeing the $19bn price tag as further evidence of swollen valuations of companies as the sector experiences what may yet prove to be another dotcom bubble.

WhatsApp does give Mark Zuckerberg inroads into international markets and, as importantly, to a younger demographic. But what is less clear is whether the finances will add up in the long term.

WhatsApp has reiterated its commitment to an ad-free service, opting to charge users a mere $1 per year. Under this scenario, it will need to continue its growth trajectory to ensure any financial return to Facebook.

But Adverts are pivotal to Facebook's own business model - and the pressure for it to monetise its new WhatsApp user base in the same way may prove too tempting to resist.

The Facebook founder said he believed WhatsApp was on track to have a billion users, but insisted he had no plans to place advertising on WhatsApp's interface, saying he did not think ads were the best way to make money from messaging systems.

Once the deal is finalised, Mr Koum and co-founder Brian Acton are set to become Silicon Valley's newest billionaires.

WhatsApp has about 50 employees in total.

Siphoning billions

Cathy Boyle, a senior analyst at research firm eMarketer, said WhatsApp was valuable to Facebook for several reasons beyond advertising, including its younger user base and its popularity overseas.

"WhatsApp actually has greater penetration in a lot of international markets than Facebook," Ms Boyle told the BBC.

She added that it was notable that Facebook's chief financial officer David Ebersman referred to the telecommunications industry when discussing the firm's purchase.

"WhatsApp is trying to siphon the billions that the telecom industry would make from [traditional SMS text messaging]" she said.

WhatsApp users talk about what they like and dislike about the app

Ben Bajarin, from California-based technology consultants Creative Strategies, told BBC Radio 4's Today programme that the deal would allow Facebook to tap into a rapidly growing market.

"WhatsApp is on a path towards a billion users," he said. "They're growing exponentially - much, much faster than Facebook.

"For Facebook this is a key growth area where, even if they don't monetise this product, this is a way that Facebook can get the next billion smartphone consumers into their ecosystem... to touch them and engage with them in other ways than just the Facebook platform."

Shares in Facebook dropped 5% in after hours trading before recovering slightly.

Prior to this acquisition, Facebook's biggest purchase had been Instagram for $1bn in 2012.

It had also reportedly offered $3bn to acquire photo messaging service Snapchat.

 

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  • rate this
    +1

    Comment number 456.

    $19bn - Crikey!
    Do they realise how may Gareth Bales they could buy with that amount of money?

  • rate this
    +12

    Comment number 455.

    I find this news disappointing. It's a handy little app that saves me money in the long term. I loath the way Facebook, Google and to some extent Apple are intergrating stuff. Google plus drives me nuts. I know Whatsapp
    is going to go the same way.

  • rate this
    +1

    Comment number 454.

    at 450m users, FB has paid $40 for each user. If it reaches 1bn users it'll cost $20 per user. Given Whatsapp charges $1 a year to use the service FB must think that they'll make up the shortfall elsewhere. Notably ads based on who you chat with and the context of those chats.

  • rate this
    +1

    Comment number 453.

    And the sad fact is, any product I buy pays for advertising, so basically I bought that pointless company for my share of 19bn dollars.

    THANKS FREE MARKET.

  • rate this
    +2

    Comment number 452.

    I suppose Whatsapp with have to do until someone can invent a way of attaching a photo to an email.

  • rate this
    0

    Comment number 451.

    Back to using the telephone...

  • rate this
    +6

    Comment number 450.

    422. Robert
    "Put Adblock plus (free) on your computer and drive this money grabbing menace from the WWW. Another Bill gates."

    Yea, evil Bill, damn him and one of the largest private charitable foundations IN THE WORLD...

    Zuckerberg is also the 2nd largest donator to charity in the US...

  • rate this
    0

    Comment number 449.

    So we can now add Zuckerberg to the list of dotcom millionaires who thought they knew better than conventional wisdom suggested.

    Still at least he'll be in good company when its time to sit around the bonfire with his bottle of cider.

  • rate this
    +6

    Comment number 448.

    Facebook = Borg
    Google = Romulans
    Apple = Klingons
    Microsoft = Ferengi

  • rate this
    +4

    Comment number 447.

    What fools ...... The internet will never catch on .... just you wait and see !!!

  • rate this
    +17

    Comment number 446.

    "Robert
    Another Bill gates. Makes the footballers pay seem saintly"

    At least Bill Gates is intent on disposing of his wealth in meaningful ways to rid the world of preventable disease and poverty. In 100 years time when MS is a footnote in computing history, he'll be remembered for that, in the same way Andrew Carnegie isn't best remembered for steel.

  • rate this
    +3

    Comment number 445.

    The good news is that most of the money ($12bn) is in Facebook stock - which is just made up bubble money and not real money. So when the Facebook bubble bursts the $12bn will drop down to a more sensible amount.

  • rate this
    +1

    Comment number 444.

    Meanwhile, on the NBC news Today programme in the US, the amount was reported as $14 million & the caption writer had it as "$14 Million." Amusing. US television caption transcribers (mine won't shut off here in DC) are full of outrageous misprints and blunders. If this is the future of "voice recognition technology" I would certainly not invest in it! Please confirm the correct amounts. NBC?

  • rate this
    +4

    Comment number 443.

    The instant adverts appear I uninstall whats app

  • rate this
    +11

    Comment number 442.

    Darn it, I closed Facebook because I was fed up with Facebook trying to control my life, I'm now going to have to do the same with WhatsApp

  • rate this
    +4

    Comment number 441.

    414. AJ
    "It's the Intellectual Property they're paying for"
    ----------------

    Wrong. They're buying growth because they don't have an income, their advertising model is fraudulent, they're desperate to sucker-in new investors.

  • rate this
    -2

    Comment number 440.

    Strange that all the highest rated are stupid remarks, must be a sign of the times. Just shows the level on mentality on HYS. Maybe I should stop while sane. It is worth it to FB to take ownership, as the distraction from its main money earner needs its control. Bit like car manufacturers buying up patents to stop us having cars that can do 300mpg or better.

  • rate this
    0

    Comment number 439.

    As a video or photograph is an artwork of unique properties and value, it would make sense to pay a fortune for any property that stckpiles our media, regardless, as such material, unlike the apps that depend on them cannot be replicated. We are worth small fortunes and should sell them our material rather than "post" it , Yay!!

  • rate this
    +2

    Comment number 438.

    "WhatsApp is on a path towards a billion users," he said. "They're growing exponentially - much, much faster than Facebook."

    This looks nothing more than a desperate move by Facebook to protect revenue by eliminating a threat.

    Suspect that Fast-buck is nearing the end of its lifespan...

  • rate this
    +2

    Comment number 437.

    I'm not even sure what Whatsapp is. I use facebook to keep in touch with friends and relatives, but all of my other personal information (apart from my name) is false - I get some interesting adverts...which I routinely flag as explicit for no reason other than I can.

    In short: your information is gold; make people like Zuckerberg really work for it.

 

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